Question

Divertive competition occurs when?

1) Retailer A sends its customer to retailer B to purchase any products that A had 'out-of-stock.'
2) The customer buys product A rather than product B, which was the one he/she was shopping for.
3) A retailer intercepts and makes a sale to a customer that normally would have purchased the product at another retail store.
4) The retailer tries to entice the customer to buy a more expensive model or brand than wanted.
5) The customer buys a private label instead of his/her usual brand.

Answer 1

Divertive competition occurs when a retailer captures the sale of a customer who would have normally bought from another store; it's a common strategy in monopolistic competition.

Step-by-step explanation:

Divertive competition occurs when a retailer intercepts and makes a sale to a customer that normally would have purchased the product at another retail store. In the context of monopolistic competition, firms compete by selling products that are unique in style, flavor, or brand, yet also contend with similar products in the market.

This competition can lead to scenarios where businesses utilize strategies such as location advantage (being physically closer to customers) or attempts to differentiate through price, service, or product characteristics. This phenomenon is seen in many industries, including clothing stores, restaurants, and grocery stores.

An example of divertive competition would be when Firm A (Amy in the graphic) moves to a location next to Firm B (Joe) to capture a larger market share, thus presenting an intervening opportunity for consumers heading to Joe's store.

Therefore the correct answer is 3) A retailer intercepts and makes a sale to a customer that normally would have purchased the product at another retail store.